Gm Strategy Questioned

Higher Profits Chosen Over Sales Gains

Auto industry analysts expressed shock Friday that General Motors Corp. has chosen to raise its prices rather than narrow the price advantage held by Japanese automakers and regain lost market share.

Amid a severe sales slump and mounting inventories of unsold cars, GM Thursday announced an average 2.9 percent price increase, or $337, on its 1986 model cars, effective April 14.

Japanese automakers, faced with the value of the yen skyrocketing against the U.S. dollar, have been forced to raise prices three times in the 1986 model year, adding more than $1,000 to their basic sticker price. That meant that domestic automakers, long lamenting a $1,200 to $2,000 price advantage by Japanese cars, were $1,000 closer to erasing the window-sticker spread.

General Motors has ``taken the Japanese increases as an opportunity to drive some increases home themselves,`` said William Pochiluk, president of Autofacts Inc., of Paoli, Pa.

``There was the temptation to give away some of the yen advantage at a time when they had the chance to beat the competition on prices,`` said Thomas O`Grady, president of Integrated Automotive Resources Inc., of Warren, Pa.

``This is typical of GM.``

GM last raised prices at the start of the 1986 model year in October an average of 5 percent, or $577, bringing the average base price of a GM car to $11,606. With the new increase, the average base price will nudge $12,000.

``GM and the other domestics had the opportunity to either outprice the imports and regain lost market share or use the yen-induced price increases as a cover to raise their own prices and hype profits. I guess this

(announcement) gives us the answer,`` said Robert McElwaine, president of the International Imported Automobile Dealers Association, which represents more than 2,000 import car dealers.

McElwaine said if GM had been more patient, the Japanese could have been forced to raise prices even more than they have already.

``It`s been difficult to notice the effect of those Japanese price increases so far, since dealers have been absorbing some of them by giving up some add-on charges or cutting down on the mandatory options they`ve been putting on cars,`` he said.

``And the distributors of the Japanese cars have been absorbing much of the increase. Really, only about 40 percent of the actual increase in prices from Tokyo has been passed on (to customers).

``A car that cost a U.S. distributor $7,000 from Tokyo a year ago would cost him $10,500 today because it costs him that much more to buy the yen to pay for the car. The distributor has to pay the Tokyo factory in yen for the cars he buys. But distributors play in the currency futures market, and they`ve been using yen bought six months ago at 175 to the dollar to pay for the cars coming from Tokyo.

``Almost undoubtedly, there will be more price increases on the Japanese cars because the distributor and dealer have run out of room to absorb the increases. We`ll see more increases unless the yen drops against the dollar,`` McElwaine said.

Ironically, Pochiluk said GM`s move to ride on the coattails of the Japanese price increase may backfire.

``The Japanese automakers have been stunned by the value of the yen,`` he observed. ``Usually they meet for two years before they decide on something. But they`re acting right now to get smarter and cut costs, remove overhead and increase productivity.

``Nissan`s executive committee just announced an immediate 10 percent wage cut at the top-management level. They`re asking suppliers to help, too. When this is over they could be even more competitive in the U.S. than they are now.``